According to FINRA, Steven Horn was fined $10,000 and suspended for seven months for making reckless misrepresentations in a loan application and loan agreement he submitted to the Small Business Administration to obtain an Economic Injury Disaster Loan.
The findings revealed that in the application, Horn recklessly misrepresented that he owned a sole proprietorship under the business name Steven Horn, using a Tax ID number identical to his personal social security number, that the primary email address for this business was his personal email address, and that the revenues and costs associated with his member firm business were those of the sole proprietorship. In actuality, Horn was providing financial services only in his capacity as a registered representative with the firm. Horn did not have any outside business activities, including any sole proprietorship or other financial services business bearing his name and personal social security number. In addition, Horn was using only his firm-issued email address to conduct his financial services business, not his personal email address. Horn's firm business was not eligible for an EIDL, and he did not have any other business eligible for an EIDL from the SBA.
Based on Horn's misrepresentations, the SBA approved Horn's application. Horn signed the loan agreement, which contained an affirmation that the representations made in his application were correct. However, Horn did not review the loan agreement before signing it. Subsequently, the SBA provided Horn with a $150,000 loan. Horn later repaid the loan in full, with interest, to the SBA.
This case involves misrepresentations in a government loan application during the COVID-19 pandemic, when the SBA's EIDL program was designed to provide emergency assistance to businesses that suffered economic injury due to the pandemic. The program had specific eligibility requirements, including that applicants must have an eligible business that suffered economic injury. Horn's work as a registered representative with his member firm did not constitute a separate sole proprietorship eligible for EIDL assistance.
FINRA found that Horn's misrepresentations were "reckless" rather than intentional. This means Horn acted with extreme carelessness and disregard for whether his representations were true, but FINRA did not find that he deliberately lied. The findings note that Horn did not review the loan agreement before signing it, which signed under oath that his application representations were correct. This failure to review documents before signing them demonstrates the type of recklessness that FINRA found.
However, the nature of the misrepresentations raises questions about how they could have been merely reckless rather than intentional. Horn represented that he owned a sole proprietorship using his personal social security number as the Tax ID, when in fact he had no such business. He claimed to use his personal email for the business when he actually used only his firm email. He attributed his firm's revenues and costs to a non-existent sole proprietorship. These are not subtle errors but fundamental misrepresentations about the existence and nature of his business.
The amount involved—$150,000—is substantial and represents a significant loan from a government program designed to help legitimate businesses affected by the pandemic. While Horn ultimately repaid the loan in full with interest, the repayment does not excuse the false statements made to obtain the loan in the first place. The repayment likely served as a mitigating factor in the sanctions imposed, but the underlying misconduct of making false statements to obtain government funds remains serious.
The seven-month suspension is one of the longer suspensions for false statement cases in this set of actions, likely reflecting both the substantial amount of money involved and the number and nature of the misrepresentations. While the misrepresentations were found to be reckless rather than intentional, the substantial loan amount and the fact that Horn took money from a program designed to help pandemic-affected businesses warrant a significant sanction.
This case serves as a reminder that registered persons must maintain high standards of honesty and integrity in all their dealings, including applications for government programs. Even if misrepresentations are reckless rather than intentional, they reflect poorly on an individual's character and fitness for the securities industry. The duty to be honest extends beyond securities-related activities to all aspects of a registered person's conduct.
